The Rise and Fall

Unraveling the twist of Alibaba’s fortunes reveals a saga of triumphs and tribulations. At the pinnacle of its power in October 2020, the e-commerce titan stood unassailable, riding the crest of success on the strength of its Chinese marketplaces, Taobao and Tmall, and its flourishing cloud platform. During the period from fiscal 2015 to 2020, the revenue soared at a CAGR (compound annual growth rate) of 46%, while net income ascended at 42% CAGR. It was a heady time, indeed.

However, Alibaba’s majestic ascent was not fated to endure. Despite a hefty 41% revenue surge in fiscal 2021, a mere 2% rise in net income ensued, due to a hefty $2.75 billion fine imposed by China’s antitrust regulators. The blow delivered by the formidable regulators dampened the company’s spirits, causing a staggering tumble in profitability. This was only the beginning of a series of dominoes that would fall, imploding its growth trajectory and prospects of dominance.

Adding to this conundrum, Alibaba faced an onslaught of macro headwinds and relentless competition from PDD and JD.com. These factors collectively stymied the growth of its Chinese e-commerce platforms, nudging the company toward an expansion of its overseas marketplaces, such as Lazada in Southeast Asia, Trendyol in Turkey, and the AliExpress cross-border marketplace.

Yet, as Alibaba’s e-commerce momentum waned, its cloud segment, a crucial pillar in its grand edifice, encountered a string of trials and tribulations. The cumulative impact of macro headwinds, cutbacks in corporate cloud service spending, and formidable competition from the likes of Huawei, Tencent, and Baidu wreaked havoc on its territory. Furthermore, the loss of major customers, including ByteDance, in the escalating trade and tech war between the U.S. and China, only further augmented the perils faced by the behemoth.

A Glimmer of Hope?

For Alibaba, fiscal 2023 held meager promise, with revenue peaking a paltry 2% on the growth chart. To navigate this formidable storm, the company initiated a strategic restructuring into six new units, implemented cost-cutting measures, and honed its focus on expanding higher-growth sectors. Despite these measures, the company’s core businesses continued to grapple with adversity.

The table above paints a dim picture of the company’s trajectory. Taobao and Tmall, contributing 48% of its revenue in the first nine months of fiscal 2024, floundered as PDD siphoned off domestic shoppers. The Cloud Intelligence segment, accounting for 11% of its sales, faced sluggish expansion as it “proactively” reduced its exposure to lower-margin industries and customers. Alibaba’s International Digital Commerce business, providing 10% of its revenue, soared but remained deeply submerged in unprofitability. Moreover, its Local Services and Digital Media divisions remained entrenched in unprofitability, with its Cainiao segment finally turning a profit after implementing severe cost-cutting measures.

The Millionaire’s Dilemma

Is Alibaba still a candidate for a miraculous stock windfall? The company urgently needs its moneymaking segments – Taobao/Tmall and Cloud Intelligence – to regain traction and bear the heavy load of its unprofitable domains. However, an economic slowdown in China and fierce competitive pressure present formidable barriers to Alibaba’s restorative journey.

Alibaba now faces a Sisyphean task. If valuations remain stagnant, the company would require a steep 26% CAGR in revenue and earnings over the next 20 years to transform a $10,000 investment into $1 million. However, soaring growth rates face a gauntlet of challenges, such as daunting macro, regulatory, and competitive headwinds, encroaching upon both its core e-commerce and cloud domains.